JB (Northbridge) Pty Ltd v St George Bank Ltd

Court of Appeal (NSW)|2010-09-20|Before: Giles JA, Gilbert J, Knoll AM, Brereton J

Background 3 The background can conveniently be taken from the reasons of the primary judge, Brereton J found as St George Bank Ltd v JB (Northbridge) Pty Ltd [2009] NSWSC 1347 - "1 The defendant JB (Northbridge) Pty Ltd ("JBN") - of which at all material times John Beville was a director and sole shareholder - is the registered proprietor of a property known as Central Hotel at 45-51 Main Street, Blacktown in the State of New South Wales. In January 2005, by registered lease number AB227824H, JBN demised the property to the second plaintiff Winners Circle - of which at all material times John Beville's son Malcolm was a director - for a term of five years commencing on 17 January 2005, with four options to renew each of ten years, at a rental of $100,000 per annum plus GST. On 15 November 2007, the first plaintiff St George Bank Limited agreed to lend about $30 million to Winners Circle, upon security that included a mortgage of the lease and a charge over Winners Circle's assets and undertaking. Pursuant to that agreement, on or about 28 November 2007, Winners Circle mortgaged the lease to St George, and on 5 December 2007 granted to St George a fixed and floating charge over all its assets and undertaking, to which JBN consented by deed made on 28 November 2007 between JBN, Winners Circle and St George ("the Consent Deed"). 2 As at 3 March 2009, Winners Circle was in breach of certain obligations under the loan agreement and the lease mortgage, and on 4 March 2009 a voluntary administrator was appointed to Winners Circle. On the same day, pursuant to the charge, St George appointed Peter Walker and Morgan Kelly of Ferrier Hodgson as controllers of the assets and undertaking of Winners Circle, including the hotel. On 13 March 2009, JBN served on the controllers a notice of intention to terminate the lease, alleging two defaults by Winners Circle under the lease - namely, overdue rent and outgoings in the amount of $696,953, and the appointment of the voluntary administrator on 4 March 2009. 3 On 25 March 2009, St George appointed the controllers as receivers and managers of the lease, a consequence of which was that by operation of the Consent Deed, JBN was not entitled to terminate the lease for non-monetary defaults that could not be rectified. On 26 March 2009, St George and Winners Circle obtained an interlocutory injunction restraining JBN from taking any action to purport to terminate the lease. On 8 April 2009, a liquidator was appointed to Winners Circle. 4 By notice dated 12 May 2009, the controllers in their capacity as receivers of Winners Circle purported to exercise the option on behalf of Winners Circle. On 26 May 2009, JBN served a notice rejecting the purported exercise of the option, disputing that Morgan Kelly as receiver had power or right to bind Winners Circle or give the notice without the approval of the liquidator or of the court, and identifying as breaches of the lease three "insolvency events" within the meaning of the lease, namely the appointment of a receiver and manager, the appointment of an administrator, and the commencement of a liquidation; and also failure to pay reasonable costs associated with a default, and (apparently) an apprehended breach of the (NSW) Liquor Act 2007. Winners Circle made no application for relief against forfeiture in respect of that notice under (NSW) Conveyancing Act 1919, s 133F, within the time limited by that section. 5 On 1 July 2009, the controllers requested the consent of JBN to the assignment of the lease to the third plaintiff ACN 138 026 150, but did not provide certain documentation and information to which in those circumstances JBN was entitled under the lease. Nonetheless, without waiting any longer for the consent to be provided or refused, Winners Circle on 15 July 2009 purported to assign its interest in the lease to ACN 138 026 150 and, on the same date, ACN 138 026 150 purported to exercise the option. On 16 July 2009, solicitors for JBN rejected this purported exercise of the option and gave another notice under C onveyancing Act , s 133E. None of the plaintiffs made any application for relief under s 133F within the time limited by that section, or at all." 4 I will adopt the names for the parties used by his Honour. JBN was the appellant. Winners Circle, St George and ACN 138 026 150 were the first, second and third respondents respectively. The respondents were jointly represented.

The separate questions 5 The questions for separate decision and the answers thereto were - "1. In the events that happened since 8 April 2009, was the option validly exercised by [Winners Circle] on 12 May 2009? Answer: Yes.

(a) In respect of the request by the receivers of [Winners Circle] made 1 July 2009 for the consent of [JBN] to an assignment of the lease to [ACN 138 026 150] ("the request"), was such request made in accordance with the terms of clauses 4.5 and 4.6 of the lease? Answer: No. (b) If yes, has [JBN] unreasonably withheld its consent to the request? Answer: Does not arise.

(c) If yes, was the lease validly assigned by [Winners Circle] to [ACN 138 026 150] on 15 July 2009 ("the assignment")? Answer: Does not arise, but yes, in equity only. 3 In the events that happened since 8 April 2009 was the option validly exercised by [ACN 138 026 150] on 15 July 2009? Answer: No. 4 Are any of the plaintiffs entitled to any of the following relief: (a) A declaration that [Winners Circle] validly exercised the option on 12 May 2009? Answer: Yes.

(b) A declaration that [JBN] unreasonably withheld consent to the assignment? Answer: No.

(d) A declaration that [ACN 138 026 150] validly exercised the option on 15 July 2009? Answer: No. 6 Orders were made - "1. [Declared that] The second plaintiff validly exercised the option under the lease of the property situate and known as 45-51 Main Street, Blacktown being the property at Folio Identifier B/318565 and the registered lease being AB227824 [sic: AB227824H] on 12 May 2009.

Declared that the second plaintiff validly assigned the said lease to the third plaintiff but in equity only." 7 In its summons JBN sought leave to appeal from "all of the orders" made by the primary judge, and in its draft notice of appeal asked that "[t]he orders" made by his Honour be set aside. However, only the answers to questions 1 and 4(a) and the first declaration were in contest on appeal. There was no application for leave to appeal or cross-appeal from the answers and declaration concerning assignment of the lease by Winners Circle, or for leave to cross-appeal from the answer concerning exercise of the option by ACN 138 026 150.

Leave to appeal 8 In the statement of claim the plaintiffs claimed injunctive relief restraining termination of the lease and declaratory relief directed to establishing renewal of the lease by Winners Circle or its assignment to and renewal by ACN 138 026 150, further or alternatively "damages including damages pursuant to section 82 of the Trade Practices Act 1974". An order in the nature of specific performance was not claimed. 9 The separate questions were no doubt intended to capture the disputes over renewal and assignment. However, stemming from the limited claims to relief, neither the answers to the questions nor the declarations made by the judge appeared to fulfil the prescription in s 63 of the Supreme Court Act 1970 that "so far as possible all matters in controversy between the parties … be completely and finally determined": see in particular Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286 at 306-7 per Barwick CJ and Jacobs J and Trans Realties Pty Ltd v Grbac (1975) 1 NSWLR 170 at 176 per Glass JA; cf at 181-185 per Mahoney JA. Although no point was taken by the respondents, there was a question whether leave to appeal should be granted, or whether the complete controversy should be brought out and determined at first instance prior to any appeal. 10 The question was resolved by the parties' commitments, as conditions of the grant of leave, to the consequences of success or failure (as the case may be) in an appeal. On JBN's part, if the appeal was dismissed it would provide Winners Circle with a lease in registrable form in accordance with the exercise of the option on 12 May 2009. On the respondents' part, if the appeal was successful the proceedings would be dismissed save for the damages claim. It was accepted that the damages claim did not involve the questions of renewal and assignment of the lease. 11 Leave to appeal was granted accordingly.

First issue: renewal although in default 12 The option for renewal in cl 17 of the lease provided in cl 17.3 - "The Lessee shall not be entitled to exercise the option unless it has:

17.3.2 Observed and performed the covenants and agreements by and on the part of the Lessee expressed or implied in this Lease throughout the Term except to the extent that any breach may have been waived or excused by the Lessor." 13 JBN submitted to the primary judge that Winners Circle had not been entitled to exercise the option because it had not "observed and performed the covenants and agreements by and on the part of the Lessee expressed or implied in" the lease. It was common ground that compliance with this condition of exercise of the option was necessary: Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1957) 59 SR (NSW) 122. 14 The submission was founded on cl 11 of the lease, which relevantly provided - " 11 DEFAULT, TERMINATION, WAIVER, ETC

11.1.1 any money payable by the Lessee is in arrears by more than 14 days (even if no formal demand has been made); or

11.1.2 the Lessee fails to comply with any other obligation on the part of the Lessee arising out of any terms of this Lease and such failure is continued for 14 days after service of a notice by the Lessor on the Lessee requiring such failure to be remedied; or

then in any such cases the Lessee shall be deemed to have made default.

If the Lessee has made default as specified in Clause 11.1 the Lessor may without further notice (unless further notice is required by Law) to the Lessee at any time:

11.2.1 re-enter upon the Premises or any part of them (by force if necessary); and

11.2.2 remove or otherwise deal with the Lessee's Equipment as provided in clause 10.5; and

determine this Lease or call for an immediate surrender of the Lessee's estate and interest under this Lease and upon such surrender the Lessor shall be freed and discharged from any claims by the Lessee under this lease but the Lessee shall not be released from liability in respect of any breach or non-observance or non-performance of any covenant, clause, agreement or condition contained in this Lease." 15 "Insolvency Event" was defined in cl 1.1 to mean, amongst other events, any occurrence when the Lessee went into liquidation (other than a voluntary liquidation for the purposes of reconstruction or reorganisation with the Lessor's consent), or when the Lessee had a receiver or manager or receiver and manager appointed in respect of any of its assets. It was not in dispute that prior to 12 May 2009 there had been an Insolvency Event whereby, within cl 11.1, Winners Circle was "deemed to have made default". 16 The primary judge did not accept the submission. In his Honour's view, deemed default under cl 11.1 by reason of the appointment of the receivers or of Winners Circle going into liquidation did not involve, and was not, failure to observe and perform the Lessee's covenants and agreements. There was no covenant or agreement by Winners Circle not to have or suffer the appointment of the receivers or liquidation: there was "simply an agreement that if those events should happen, then there will be a deemed default with the associated consequences" (at [11]). The distinction was evident within cl 11.1, in which the first two cases involved failure to comply with an obligation under the lease and the third case, occurrence of an Insolvency Event, was separately identified. 17 The primary judge said that the difference between failure to comply with a lessee's obligation, and an event of default, not involving breach, upon which the lessor can determine the lease, was well recognised, referring to Shevill v Builders Licensing Board (1982) 149 CLR 620 at 627-8 per Gibbs CJ. His Honour said that a similar distinction was found in decisions concerning penalties, a number of which were cited, where a payment conditioned on a breach of contract could be a penalty but a payment conditioned on termination upon occurrence of an event was not. His Honour distinguished cases in which it had been held that a right of re-entry upon bankruptcy or like events fell within "breach of any covenant, condition or agreement" within s 129 of the Conveyancing Act 1919 and its equivalents, as decided "in the context of particular statutory provisions to which a purposive and beneficial construction had been given" (at [13]). 18 On appeal, JBN's submission was to the same effect as that made to the primary judge. It was emphasised that cl 11.1 provided that the Lessee was deemed to have made default, said to be an "active verb" meaning more than being in default. It was said that the deeming required that there be imagined as real "the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it" (East End Dwellings Co Ltd v Finsbury Borough Council (1952) AC 109 at 132 per Lord Asquith); and that, because default was falling short of complying with an obligation, an Insolvency Event so treated as a default made by the Lessee was a breach by the Lessee constituting a failure in observance or performance for the purposes of cl 17.3.2. JBN distinguished Shevill v Builders Licensing Board on the ground that the clause in that case provided for reentry upon an event without deeming that event to be a default, and said that the parties' agreement to treat an Insolvency Event as making default should be given effect as "risk allocation". 19 Reference to risk allocation does not assist: if it was a matter of risk allocation the allocation depended on the terms of the lease on their proper construction. I do not think that deeming the Lessee to have made default meant that occurrence of an Insolvency Event was a failure to observe or perform a covenant or agreement, express or implied, as required for cl 17.3.2. As the trial judge observed, the distinction between failure to comply with an obligation and an Insolvency Event is evident in cl 11, and it may be added that it makes no sense to regard a failure to comply with an obligation within cl 11.1.2 as needing or obtaining any additional status as a breach through a deemed making default. The deeming has another purpose, to construct the circumstances in which there may be reentry or other action under cl 11.2. There is no reason why action under cl 11.2 should be open only in the event of failure to observe or perform a covenant or agreement. An occurrence such as going into liquidation can rationally be bargained to entitle the Lessor to reenter or take the other action. The difference was correctly seen by the primary judge in the remarks of Gibbs CJ in Shevill v Builders Licensing Board, and is unaffected by absence of deemed default in that case. 20 JBN relied again on the cases upon s 129 of the Conveyancing Act, giving as the case which "came closest" Della Imports Pty Ltd v Birkenhead Investments Pty Ltd (1987) NSW Conv R 55-358. Section 129(1) of the Conveyancing Act refers to a right of reentry or forfeiture under a lease "for a breach of any covenant, condition or agreement (express or implied) in the lease". McLelland J held that - " … a provision in a lease which provides for re-entry or forfeiture on the happening of any particular stipulated event, regardless of whether or not there is any obligation on the lessee to prevent that event occurring, is a 'condition' within subs(1) of s129. I think that the word 'breach' in that sub-section is equivalent to 'non-fulfilment'. I think that this interpretation of s129 is supported first, by the evident policy of the provision which would otherwise be manifestly inadequate for the protection of lessees which it obviously is intended to confer and, secondly, by the reference in pars (c) and (e) of subs(6) of s129 to 'a condition for forfeiture on the taking in execution of the lessee's interest' in certain types of lease, non-fulfilment of which would not normally amount to a breach of any contractual provision in the lease but simply be an event which might occur." 21 The statutory language, including the reference in s 129(6), is quite different from that in the clauses presently in question, and the "evident policy" does not apply. In Wynsix Hotels (Oxford Street) Pty Ltd v Toomey [2004] NSWSC 236 at [53] Young CJ in Eq (as his Honour then was) followed McLelland J's approach, although in obiter remarks, saying at [54] that "[t]he right to terminate on the happening of an event that the lessee has a receiver appointed comes very close to a negative covenant promising not to have a receiver appointed". As the primary judge said at [13], "very close", does not mean "the same as". JBN's reliance on the cases is misplaced.

Second issue: subsequent failure to observe or perform a covenant or agreement 22 The primary judge did not deal with this issue. There was dispute over whether the issue could have been and was raised before him, and whether it could be raised on appeal. 23 Clause 17.3.2 of the lease referred to observance and performance of the Lessee's covenants and agreements "throughout the Term". The primary judge held that the request on 1 July 2009 for JBN's consent to assignment of the lease to ACN 138 026 150 was not made in accordance with cll 4.5 and 4.6 of the lease, because it was necessary that the request be accompanied by certain information and it was not (see the answer to question 2(a)). On 15 July 2009, before the end of the Term, Winners Circle purported to assign the lease to ACN 138 026 150. It had not requested the consent of JBN in accordance with the lease, or received the consent of JBN. The assignment was held to be valid, but in equity only (see the answer to question 2(c)). JBN submitted that thereby Winners Circle had failed in observance of its covenants and agreements throughout the term, specifically in observance of cl 4.5 which provided - " No Assignment

The Lessee shall not during the continuance of this Lease assign or transfer the Lessee's interest in the Premises or this Lease or by any act or deed procure any assignment or transfer, except in accordance with the terms of the Lease." 24 In Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603 Tobias JA, with whom Mason P and Campbell JA agreed, held in relation to a provision materially the same as cl 17.3 that a purchaser in breach of an obligation at the expiration of a supply agreement, although not in breach at the time the option was exercised, was not entitled to renewal of the agreement: see at [235]-[247]. The respondents did not challenge this reasoning. JBN submitted that, in like manner, Winners Circle was not entitled to renewal of the lease. 25 It is not necessary to decide whether it was open to JBN to rely on subsequent breach of cl 4.5 as disentitling Winners Circle to renewal of the lease, or to decide whether it did so before the primary judge. The pleaded defence would ordinarily confine the scope of the questions for separate decision, but it was imprecise. If there was reliance on the subsequent breach in submissions, it may have suffered from like imprecision and thus escaped counsel for the respondents and the judge. For at least two reasons, JBN's submissions should not be accepted. 26 First, I do not think that there was breach of cl 4.5 of the lease. 27 The lease was a registered lease under the Real Property Act 1900. An assignment or transfer of "the Lessee's interest in the Premises or this Lease" as referred to in cl 4.5 was an assignment or transfer at law. An assignment in equity was not sufficient - otherwise, a contract to assign or transfer subject to obtaining the Lessee's consent would constitute a breach. JBN submitted that the words "or by any act or deed procure any assignment or transfer" took the matter further, and extend to an equitable assignment as an act or deed attempting or towards an assignment or transfer. But that again would mean a contract to assign or transfer subject to obtaining the Lessee's consent would constitute a breach, and would also mean that approaching the Lessor with a view to consent prior to agreeing with the prospective assignee or transferee would be a breach. In my view, an assignment or transfer at law had to have been brought about in order that there be breach. 28 Winners Circle purported to assign to ACN 138 026 150 "its interest in the lease". The agreement between them provided for provision of a transfer of the lease in registrable form and doing "all things necessary to effect registration of the transfer". That did not occur, and there was no assignment or transfer at law. 29 Secondly, even if there had been a breach of cl 4.5, JBN did not serve a prescribed notice in respect of it and by force of s 133E of the Conveyancing Act the breach did not preclude Winners Circle's entitlement to the option for renewal. 30 Section 133E relevantly provides -

" 133E Breach of certain obligations not to preclude option except in certain circumstances

(1) This section applies to a lease that contains: (a) an option exercisable by the lessee, and

(b) provision by which the lessee's entitlement to the option is made to depend on performance by the lessee of any specified obligation, whether such performance is required before, or after, or before and after, the giving of any notice by which the option is exercised.

(2) Despite any provision of the kind referred to in subsection (1)(b), no breach by the lessee of any relevant obligation precludes the lessee's entitlement to the option unless: (a) the prescribed notice has been served on the lessee in respect of the breach, and

(b) the lessee's rights are extinguished in relation to the notice.

prescribed notice means a notice in writing: (a) specifying the lessee's breach of the relevant obligation and served on the lessee: (i) within 14 days after the giving of a notice by which the option is exercised, if the breach occurred before the giving of that notice, or

(ii) within 14 days after the breach, if the breach occurred after the giving of that notice, and (b) states that, subject to any order of the court under section 133F, the lessor proposes to treat the breach as precluding the lessee from entitlement to the option.

(4) For the purposes of subsection (2)(b), the lessee's rights are extinguished in relation to a prescribed notice: (a) if an order for relief against the effect of the breach in relation to the lessee's entitlement to the option is not sought from the court within one month after service of the prescribed notice, or

(b) if proceedings in which such relief is sought are disposed of, in so far as they relate to that relief, otherwise than by granting relief, or

(c) if such relief is granted on terms to be complied with by the lessee before compliance by the lessor with the order granting relief, and the lessee fails to comply with those terms within the time stipulated by the court for the purpose." 31 A letter dated 16 July 2009 from JBN's solicitors to the respondents' solicitors treated the purported assignment by Winners Circle to ACN 138 026 150 as a request for consent to an assignment, and in summary said that the information required under cl 4.6 of the lease should be provided before the request was further considered. The letter included - " Rejection of purported exercise of option under the Lease by the Proposed Assignee

The Proposed Assignee, by a notice dated 15 July 2009 ('the Subsequent Exercise'), purported to exercise the option under the Lease pursuant to clause 17.2. An unregistered purported assignee of the Lease cannot exercise the option under the Lease, only the registered lessee can do so. In the circumstances, please find enclosed a Notice of Rejection of the Subsequent Exercise dated 15 July 2009 addressed to both the Lessee and the Purported Assignee. You will notice that this document is in similar terms to the Prescribed Notice, although it identifies additional bases for the Lessor's rejection of the Subsequent Exercise, including -

a. that the entity purporting to exercise the option, namely the Purported Assignee, is not the Lessee, and as such is not entitled to exercise the option under the Lease; and

b. if the Purported Assignee is acting as a nominee of the Receivers, it cannot, either in law or equity, do that which the Lessee is not permitted to do." 32 The "Prescribed Notice" had been identified earlier in the letter. It was a prescribed notice in response to the exercise of the option to renew by Winners Circle on 12 May 2009. It made no mention of a breach of cl 4.5 of the lease, and when it was served the purported assignment by ACN 138 026 150 had not yet occurred. 33 The enclosed "Notice of Rejection of the Subsequent Exercise" was addressed to ACN 138 026 150 and also to Winners Circle. It was dated 16 July 2009, not 15 July 2009, and from its terms was intended to be a prescribed notice within s 133E. It relevantly read - " REGISTERED LEASE NO. AB2278248 [sic: AB227824H] ("the Lease")

We refer to the purported Notice of Exercise of Option signed by ACN 138 026 150 Pty Limited sent to us on 15 July 2009 ("the Notice"). The option referred to in this letter is that referred to inter alia in clauses 17.1, 17.2 and 17.3 of the Lease. Previously, the Receivers and Managers of the Lessee purported to exercise the option on 12 May 2009. On 26 May 2009 ("the Original Exercise"), the Lessor served a notice in accordance with section 133E of the Conveyancing Act (NSW) 1919 ("the Prescribed Notice"), being a date within 14 days after the Original Exercise. The Lessee's rights in relation to the Prescribed Notice were extinguished pursuant to section 133E(4) therein because the Lessee did not, within one month after service of the Prescribed Notice, seek from the Court an order for relief against the effect of the breaches identified in the Prescribed Notice. On 8 April 2009 Sule Arnautovic was appointed liquidator of the Winners Circle Group Pty Limited, the Lessee (as defined in cl 1.1 of the Lease) under the Lease. On and from 8 April 2009, ACN 138 026 150 Pty Limited did not have power or lacked the right to bind the Second Plaintiff and/or to give the Notice without either the Liquidator's approval or the Court's approval, neither of which ACN 138 026 150 Pty Limited has secured. Further, or in the alternative, to the extent that on and from 8 April 2009 ACN 138 026 150 Pty Limited did have power and the right to bind the Lessor (as defined in clause 1.1 under the Lease) and to give the Notice (with or without the Liquidator's approval), or to the extent that in giving the Notice ACN 138 026 150 Pty Limited acts on behalf of St George Bank Limited, this letter is a notice under section 133E of the Conveyancing Act 1919 . The Lessor specifies the Lessee's breaches of the Lease set out below as precluding the exercise of the option. Subject to any order of the Court under section 133F of that Act, the Lessor proposes to treat each such breach severally as precluding the Lessee from entitlement to the option. Breaches of the Lease 1. The Lessee has not complied with clause 17.3.2. The Lessee is in breach of the Lease because the following Insolvency Events, as defined in clause 1 of the Lease, have occurred: Event (e) - a Receiver and Manager has been appointed; and/or Event (f) - an Administrator was appointed; and/or Event (a) - a liquidation has commenced which is not a voluntary liquidation for the purposes of reconstruction or reorganisation with the Lessor's consent, which we not has not been sought. 2. The Lessee has not paid the Lessor's reasonable costs associated with any default by the Lessee, as the Lessee is required to pay pursuant to clause 12.5.7. The Lessor to date has incurred such reasonable costs by way of legal fees and disbursements associated with enforcing the Lessor's rights pursuant to the Lessee's default, currently in the sum of $56,952.23 (incl GST). The Lessor's costs continue to be incurred in this regard. 3. ACN 138 026 150 Pty Limited has been proposed to the Lessor to become the Lessee, but the terms of clauses 4.5 and 4.6 of the Lease have not been complied with. Consequently, ACN 138 026 150 Pty Limited is not the Lessee and cannot exercise the Lessee's rights under the lease.

ACN 138 026 150 Pty Limited, to the extent that it is acting as the nominee or otherwise for the Lessee, cannot do that which the Lessee cannot do.

The Notice was not signed by a director or secretary of the Lessee as required by 1.13.2 of the Lease. 6. … " 34 JBN submitted that the notice extinguished Winners Circle's rights following its exercise of the option for renewal on 12 May 2009, relevantly with specification of breach of cl 4.6. The respondents submitted that the notice was confined to the rights of ACN 138 026 150 following its purported exercise of the option as purported assignee on 15 July 2009. 35 It is not clear that the notice specified a breach of cl 4.6 of the lease. The matters listed under the heading "Breaches of the Lease" were not all breaches: for example, those numbered 4, 5 and 6 were not. JBN relied on the matter numbered 3. It included that cll 4.5 and 4.6 of the lease had not been complied with, but it seems as part of the narrative for an assertion that ACN 138 026 150 was not the Lessee and could not exercise the Lessee's rights under the lease. This also may have been a non-breach matter. A breach should be clearly specified, as a breach, because the lessee must then apply for an order for relief against the effect of the breach in relation to the entitlement to the option, and the lessee should be told in clear terms what it must address. 36 Be that as it may, the respondents' submission should be accepted. In its first paragraph the notice was specifically responsive to the purported exercise of the option by ACN 138 026 150. That paragraph distinguished the previous exercise of the option by Winners Circle, which it was said had already been extinguished. The second and third paragraphs were concerned only with the ability of ACN 138 026 150 to exercise the option, and the invocation of s 133E at the end of the third paragraph was to the extent that it could do so. JBN said that the notice specified "the Lessee's breaches of the Lease" and identified breaches by "the Lessee" precluding "the Lessee" from entitlement to the option; that the lessee was Winners Circle; and that Winners Circle's rights were therefore the subject of the notice. However, these references were to ACN 138 026 150 as purported lessee, and took up what were said to be Winners Circle's breaches as breaches precluding the entitlement of ACN 138 026 150 to the option. 37 That the notice was addressed also to Winners Circle does not alter its clear restriction, understandably as a response to the purported exercise of the option for renewal by ACN 138 026 150 as purported assignee, to the entitlement of ACN 138 026 150 to the option. Regard to the solicitors' letter, speaking of ACN 138 026 150's purported exercise of the option, confirms that view of it. It was not a prescribed notice founding extinguishment of Winners Circle's rights and preclusion of its entitlements to the option.

Third issue: exercise of the option by the receiver 38 The exercise of the option for renewal by Winners Circle was by a notice in the terms - "Pursuant to clause 17.2 of the Lease WINNERS CIRCLE GROUP PTY LIMITED (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED) hereby gives notice to the Lessor that it exercises the option to renew the Lease for the First Option Term commencing 17 January 2010 and terminating 16 January 2020.

WINNERS CIRCLE GROUP LIMITED (IN LIQUIDATION) (RECEIVERS AND MANAGERS APPOINTED)

As Receiver and Manager" 39 JBN submitted before the primary judge that the receiver did not have power to exercise the option because Winners Circle was in liquidation, at least without the approval of the liquidator or the Court under s 420C of the Corporations Act. It submitted that, following the appointment of the liquidator, the receiver could not without approval incur liabilities enforceable against Winners Circle or its assets, which creation of a new lease by exercise of the option would do. 40 The primary judge did not accept the submission. After reference to a number of cases (Gaskell v Gosling (1896) 1 QB 669; Gough's Garages Pty Ltd v Pugsley (1930) 1 KB 615; Visbord v Federal Commissioner of Taxation (1943) 68 CLR 354; Mercantile Credits Ltd v Atkins (1985) 1 NSWLR 670; re Yates, National Mutual Life Association v Catco Developments Pty Ltd (1989) 88 ALR 583), he said - "24 In my view, these cases establish that while a winding-up order incapacitates a company from carrying on business, and deprives the receiver of power to bind the company personally by acting as its agent, it does not affect the rights of a receiver given under a security that pre-dated the liquidation, although the company is no longer liable for any debts which the receiver may incur in exercising those rights; and an option to renew a lease is such a right.

25 In the present case, the option contained in the lease formed part of the assets of Winners Circle which it gave to the bank as security. Clause 26.4(c) of the Lease Mortgage empowered the receivers to do anything the law allowed a receiver of the lessee's interest in the lease to do, which includes exercise of an option in the lease. The receiver's capacity to exercise the option is not affected by the subsequent appointment of a liquidator. Its exercise may not impose on the company liabilities provable against the unsecured assets, the consequent liability under the (renewed) lease being that of the receiver. But that does not deny the capacity of the receiver to exercise the option, which formed part of the mortgagee bank's security." 41 On appeal, JBN expressly abandoned the submission that the receiver did not have power to exercise the option. The effect of liquidation on a receiver's power to exercise an option for renewal may not have been fully explored in the cases, but it would not be appropriate to enter upon that matter in view of the abandonment by JBN of its submission. JBN limited its submission on appeal to the contention. The submission on appeal was that, in the exercise of his power, the receiver could exercise the option for renewal only for the purpose of realising Winners Circle's assets and paying St George, and that it could not be said that he had done so. JBN submitted that the primary judge should have asked whether the power was properly exercised, and should have found that it was not exercised in order to dispose of the lease. 42 It does not appear that this submission was made to the primary judge, and there was no finding as to the receiver's purpose. There was no reason for the primary judge to ask whether the power was properly exercised, when that had not been an issue before him. The submission was not strongly maintained. I do not accept that the receiver had other than a proper purpose. The receiver had first to get in the asset, the renewed term, before realising the asset in order to pay out St George. An affidavit of Mr Peter Walker, one of the receivers, was read. He was not cross-examined. There is no basis for ascribing to the receiver that he was engaged in a frolic outside his mandate, and it should be concluded that he properly exercised the power.

Orders 43 The appeal should be dismissed with costs. 44 HANDLEY AJA: I agree with Giles JA. 45 SACKVILLE AJA: Subject to one matter, I agree with the orders proposed by Giles JA and with his Honour's reasons. 46 I prefer to express no opinion on whether the purported assignment by Winners Circle of the lease on 15 July 2009 was a breach of cl 4.5. We were not taken to the authorities holding that covenants prohibiting the lessee from assigning or transferring a lease, without the consent of the lessor, are breached by an assignment or transfer without consent which is effective in equity only. It may well be that Winners Circle's purported assignment did not breach the particular language of cl 4.5 for the reasons given by Giles JA. However, that conclusion would seem to leave no room for the independent operation of the latter part of cl 4.5, specifically the words "or by any act or deed procure any assignment or transfer". Whether those words could lead to a different result than would ordinarily be the case was not explored in depth in the argument. 47 For the reasons given by Giles JA, even if Winners Circle's purported assignment breached cl 4.5 of the lease, the breach did not disentitle Winners Circle from relying on its exercise of the option to renew the lease. It is therefore unnecessary to consider whether the language of cl 4.5 of the lease extends to an assignment of a lease which is effective only in equity.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.

CITATION: JB (Northbridge) Pty Ltd v St George Bank Ltd [2010] NSWCA 249

Della Imports Pty Ltd v Birkenhead Investments Pty Ltd (1987) NSW Conv R 55-358; East End Dwellings Co Ltd v Finsbury Borough Council (1952) AC 109; Gaskell v Gosling (1896) 1 QB 669; Gilbert J McCaul (Aust) Pty Ltd v Pitt Club Ltd (1957) 59 SR (NSW) 122; Gough's Garages Pty Ltd v Pugsley (1930) 1 KB 615; Mercantile Credits Ltd v Atkins (1985) 1 NSLWR 670; CASES CITED: Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286; Ryledar Pty Ltd v Euphoric Pty Ltd [2007] NSWCA 65; (2007) 69 NSWLR 603; Shevill v Builders Licensing Board (1982) 149 CLR 620; Trans Realties Pty Ltd v Grbac (1975) 1 NSWLR 170; Visboard v Federal Commissioner of Taxation (1943) 68 CLR 354; Wynsix Hotels (Oxford Street) Pty Ltd v Toomey [2004] NSWSC 236; re Yates, National Mutual Life Association v Catco Developments Pty Ltd (1989) 88 ALR 583.

LOWER COURT MEDIUM NEUTRAL CITATION: St George Bank Limited v JB (Northbridge) Pty Ltd [2009] NSWSC 1347

At a glance

Court

Decision date

Before

Source

Judgment (42 paragraphs)

Parties

Cases Cited (11)